Square prices IPO at $9, well below expected range

In a blow to Unicorns, Square priced its initial public offering at $9 per share, Reuters is reporting. That is well below its expected range of $11 to $13 per share and far below its last valuation as a private company.

The San Francisco mobile payments sold 27 million shares, raising raised $243 million. With 323 million shares outstanding, that values company at $2.9 billion.

Last fall, the San Francisco raised $150 million in Series E funding that valued the company at almost $6 billion.

The San Francisco mobile payments company sent shock waves through Silicon Valley earlier this month when it announced plans to price its IPO at $11 to $13 per share. The high end of that range would have given Square a market value of $4.2 billion.

A so-called ratchet agreement guaranteed that Series E investors would be compensated with more shares if the company went public below $18.56 per share.

The actual price — coming on a day when the Dow Jones soared 248 points — calls into question the valuation of other unicorns, or private companies valued at more than $1 billion. Once a rarity, there are now at least 91 in the U.S. alone, according to CB Insights.

Earlier today, Dealreporter, a stock news and data service for fund managers and investment banks, said Square was likely to price at or below the low end of its expected range. By some models, Square looks more expensive than PayPal, which “makes it more likely Square will price below the range,” one anonymous investor told Dealreporter.

When a company raises money at a valuation lower than the previous one, it’s called a down round. Square stock will begin trading Thursday, under the ticker symbol SQ, in what’s known as a down round. Other companies sharing this dubious distinction of late include Box, New Relic and HortonWorks.

With private company valuations going through the roof, more late-stage investors have been demanding various types of guarantees that they won’t lose money if the company gets acquired or goes public at a price lower than what they paid. Fenwick and West attorney Barry Kramer studied 37 U.S. venture-backed companies that raised money at valuations of $1 billion or more in the 12 months ending March 31. He found that all unicorn deals provided investors with such guarantees if the company got acquired at a lower price, but only 30 percent provided investors significant protections if the company went public at a lower price.